REASONS
FOR JUDGMENT
Boyle J.
Overview
[1]
The only issue in this appeal is whether gains
on securities bought and sold by the Appellant in 2009 were on income or
capital account.
For the reasons that follow, I have concluded that the Canada Revenue Agency
(“CRA”) reassessment that characterizes the gains as income gains has not been
demonstrated to be incorrect.
[2]
This was a two‑day trial with three
witnesses. The Appellant testified, as did his investment advisor,
Andrew Stiff. The Respondent called the CRA auditor, Leszek Gajewski.
Written submissions were received after the hearing.
[3]
Mr. Foote is a graduate of Queen’s
University and a Certified Financial Analysist or CFA, and is the Co‑Head
of Institutional Trading at Raymond James Ltd. (“RJL”), a Canadian full service
investment dealer or brokerage firm for individual and institutional investors.
Mr. Foote was licensed by securities regulators in a large number of U.S.
and Canadian jurisdictions, including as a trading and dealing officer. He
maintained two investment accounts at RJL, one for Canadian and one for U.S. dollar
positions.
[4]
Mr. Foote testified that his investment
strategy has always been to invest in diversified securities that he feels have
the potential for 30% returns, including distributions and growth, within what
he thinks will be a certain reasonable time frame. He acknowledges that there
is no written record of that objective.
[5]
Mr. Foote also sold some securities short
throughout. That is, he sold securities positions before he bought them and he
borrowed the securities to close his sale. His short positions also went
through these two accounts. Gains and losses on short sales were reported by
Mr. Foote on income account throughout. All other gains and losses were
reported on capital account throughout. Mr. Foote’s gains and losses on
short sales are not in dispute in this appeal.
[6]
In the first two months of 2009, he liquidated
his holdings in both accounts and converted them to cash. He testified he did
this because he originally intended to pay down his mortgage when it was
scheduled to renew.
[7]
Instead, he saw an unprecedented opportunity to
invest in stocks that met his investment criteria given that the market was
considered by many to have bottomed out in its decline during the financial
crisis that started to hit the markets in 2008. In the remaining 10 months
of 2009, Mr. Foote purchased and sold stocks of 34 issuers costing about $2,500,000. This involved 38 purchase
transactions and 50 sale transactions. His total gain was about $550,000 or
about 23%. His average hold period of stocks of an issuer was about 50 days.
His average return on any particular issuer was about 30%. In those
10 months major Canadian and U.S. markets went up by about 40%.
[8]
The Appellant reported all of his gains and
losses on these positions as capital gains in his 2009 income tax return. CRA
reassessed to include the full amount in income.
The Facts
[9]
Mr. Foote has been in the investment
industry for over 25 years. He has been investing personally throughout
that period. He started with the predecessor of what is known now as RBC Dominion
Securities. He remained at that brokerage firm for 15 years. I was not
told what he did at RBC Dominion Securities; the Respondent’s assumption in the
reply is that he was a “senior trader”. From
there he went to CIBC World Markets in about 2005. He described that when he left
CIBC World Markets in 2007, he was its Head of Institutional Trading. He joined
RJL as its Co‑Head of Institutional Trading. He continues to hold that
position.
[10]
As Co‑Head of Institutional Trading at
RJL, Mr. Foote was not involved in the retail side of the business. The
Research group at RJL is also separate from Institutional Trading.
Institutional Trading does have full access to that group’s research.
[11]
Institutional Trading is essentially responsible
for lining up or matching or pairing institutional clients who want to sell
securities held by them with other institutional clients who want to buy those
securities, or vice versa. If an institutional client wanted to sell, it
was open to Mr. Foote to use RJL’s own money, or its book, to complete the
transaction. Some of the people who reported to him could also use RJL’s book. These
people were called traders and those who could not access the book were called
sales traders. All of the traders and sales traders in Institutional Trading
reported to Mr. Foote. The firm’s book was used when it was needed to facilitate
and fulfill a sale order and earn the commissions on the sale and/or the other
institutions’ purchases of the bulk of the sale order. Using the firm’s book
involves assessing the risk of loss to the firm. If Institutional Trading uses
the firm’s book to buy securities, it is also responsible to sell them.
According to Mr. Foote, this happened all the time. If a loss resulted,
Institutional Trading bore the loss.
[12]
Mr. Foote explained that Institutional
Trading operated in this same manner at CIBC World Markets and at RJL.
Mr. Foote had also supervised all of Institutional Trading’s traders at
CIBC World Markets.
[13]
In 2009, Mr. Foote’s employment income from
RJL was approximately $775,000. This was significantly less than his previous
three‑year employment income of approximately $2,000,000, $2,000,000 and
$1,000,000 respectively.
[14]
The brokerage sector is regulated. A brokerage firm’s
employees are only permitted to have investment accounts at their own
brokerage. Activity in those accounts are monitored by a compliance department
to ensure that the traded securities are not on a restricted list involving
issuers about which the firm may be seen to have specific knowledge not yet
publicly available.
[15]
Mr. Foote set up two accounts at RJL when
he joined, one for U.S. and one for Canadian activities. He had the choice of opening discount
accounts which would charge a $10 cut‑rate commission per trade, or full
service accounts which would cost him a $90 commission per trade.
Mr. Foote chose full service accounts which gave him access to a financial
investment advisor. Mr. Foote chose Mr. Stiff as his investment
advisor. Mr. Stiff managed accounts of about 18 other RJL colleagues.
Mr. Stiff referred to these as his pro accounts. Mr. Foote did not
give Mr. Stiff discretion to engage in trades without his approval.
[16]
Mr. Stiff met with Mr. Foote at the
outset of their investment management relationship. Mr. Foote was his
client for these purposes. They discussed Mr. Foote’s personal investment
experience, risk tolerance and investment strategy as required in order to get
to know his client. Mr. Stiff said that this would be one of his most
important conversations with Mr. Foote as with any client. This resulted
in client account agreements being entered into.
[17]
Mr. Foote’s client account agreements with
RJL specify that:
(a) his
personal Investment Objectives for the accounts are:
(i) 50%
Growth (“My emphasis is on realizing capital gains through
investments in securities including, but not limited to, equities.”),
(ii) 50%
Speculative (“My emphasis is on maximizing my total
return potential through investments in securities including, but not limited
to, speculative equities, options or high risk fixed income products. I may
also engage in short term trading.”);
(b) his
personal Risk Tolerance for the accounts is 50% Medium and 50% High;
(c) his
Primary Intended Use of the accounts is Capital Appreciation;
(d) his
level of Investment Knowledge was Sophisticated;
(e) his
Investment Experience with all 10 categories of listed investments was
Extensive.
[18]
This is consistent with his 2009 monthly RJL
investment account statements which each set out on the face page: (i) his
50:50 Growth:Speculative Investment Objectives, and (ii) his 50:50 Medium:High
Risk Tolerance.
[19]
Mr. Stiff and Mr. Foote spoke typically
two or three times a week about buying and selling thoughts and opportunities
as well as markets and investments generally. Mr. Foote initiated about 60%
of these calls. All of Mr. Foote’s specific buying and selling
instructions would have been relayed in such conversations. Specific buying and
selling discussions were initiated by each of them about equally. Mr. Stiff
would at least quickly review Mr. Foote’s holdings in each account for
each conversation. He would normally provide Mr. Foote with his advice
related to Mr. Foote’s planned purchases, sales and reinvestments.
Mr. Stiff knew that Mr. Foote followed the markets beyond what he may
have needed to as Co‑Head of Institutional Trading.
[20]
Mr. Foote acknowledged he gleaned
information on the markets from his RJL work, even though he did not
necessarily need to know it to do his job. In addition, he estimated he spent
about 45 minutes daily reading and watching business and markets news. He also follows market
analysts and research.
[21]
On Mr. Foote’s January 2009 RJL statements,
his two investment accounts were
holding cash and securities valued at approximately $650,000. In January,
Mr. Foote sold about $100,000 of his holdings and left that amount as cash
in the accounts. By the end of February 2009, the securities in the accounts
had been fully liquidated and the accounts had a cash balance of about $657,000.
[22]
Mr. Foote explained that he converted his
holdings to cash because a Royal Bank of Canada (“RBC”) mortgage on their home
was maturing in, he thought, April 2009 and he intended to pay it off instead
of renewing it. No mortgage or mortgage renewal documents from, or
correspondence with, RBC or any other financial institution were put in
evidence. Mr. Foote appears not to have even consulted them in preparation
for trial as he was not even certain the bullet payment/renewal was due in
April. There was no evidence whether the mortgage proceeds had been originally
used to buy the home or for investment or other purposes. Mr. Stiff
testified clearly and consistently that he was not told by Mr. Foote about
any plans to pay off his mortgage with his liquidation proceeds until at least
March 2009, by which time Mr. Foote had already renewed (or committed to
renew) the mortgage and started his reinvestment program.
[23]
Mr. Foote renewed his mortgage and
reinvested in the markets because of a prevailing sense that the markets had
bottomed out by early March. Mr. Foote said he came to this judgment along
with Mr. Stiff and after talking to his wife. He said his investment
strategy remained unchanged from prior years, that he was buying securities
that had a good prospect of overall 30% returns within a reasonable and
foreseeable period.
[24]
The 2009 monthly statements for the investment
accounts are in evidence and are accepted by the Respondent and the Court as
accurate. Read in conjunction with the other evidence, these show, among other
things:
(a) Mr. Foote
finished liquidating his investments on Friday, February 27, 2009 and
began reinvesting his cash on Monday, March 2, 2009; by the end of March
he was 70% invested in securities and 30% in cash, in contrast to being only
about 40% invested in securities at the end of 2008.
(b) Mr. Foote
invested in securities of 34 issuers. He only reinvested in two of the issuers
whose securities he had liquidated in January and February.
(c) The
average hold period for the securities of any issuer was about 50 days. In
five cases he sold within the first week of buying them. In 10 cases,
sales began within 30 days of purchase; in 20 cases, within
60 days. In at least one case, Open Text, he continued buying an issuer’s
securities after he started selling identical recently acquired shares. In at
least one other, Addax Petroleum, he started selling the day after he bought, even
before his purchase settled, and that, for a gain of less than 1%. The longest
hold period was 274 days, less than nine months. The longest hold period
in the U.S. account was less than 30 days.
(d) Distributions
or dividends of about $18,000 were received.
(e) There
was a total of 38 purchase transactions investing about $2,500,000 and 50 sale
transactions generating about $3,000,000.
For some issuers, the shares were not purchased at the same time and/or were
sold at different times.
(f) The
gain on each issuer’s securities averaged 30%. This ranged from losses of 4% to
21% on three issuers, to gains of 2% to 158% on the other 31 issuers.
(g) Mr. Foote
sold 21 of the 34 issuers for less than his target rate of 30% rate of return.
(h) At
the beginning of March 2009, the value of the investment accounts was $657,000.
At the end of December 2009, the value was $725,000.
(i) Most
of the approximately $550,000 gains from the 2009 investment activities had
been withdrawn by the Appellant throughout the year. The reasons and purposes
of such withdrawals are not in evidence.
[25]
About one‑third of the issuers were in
industry sectors for which Mr. Foote was primarily responsible at RJL. This
is consistent with him being responsible at RJL for sectors comprising about
one‑third of the market. His description of his investment strategy and
activities was no different with respect to his investments in these sectors.
[26]
Securities which Mr. Foote bought and sold
in 2009 were a mix of blue chip and very blue chip dividend paying stock to
moderate risk and high risk stock. Mr. Foote and Mr. Stiff both
testified to this effect, though they did not always assign the same degree of
risk to particular issuers. Mr. Foote did not say he dealt with his blue
chip investments any differently than his moderate or high risk investments.
[27]
I was not given detailed evidence regarding
Mr. Foote’s investments in prior years. His total gains on his investing
activities in 2006, 2007 and 2008 were about $5,000, $10,000 and $35,000
respectively.
The Law
[28]
Both parties have put forward the same legal
test to be applied in this case. They both refer to this Court’s decision in Rajchgot
v. the Queen, 2004 TCC 548 (affirmed by the Federal Court of Appeal). In
that case, our former Chief Justice Rip drew largely on the Federal Court of
Appeal decision in The Queen v. Vancouver Art Metal Works Limited, 93
DTC 5116.
[29]
In Rajchgot, the test in a case such as
this is clearly defined as whether or not the securities giving rise to the
loss or gain were sustained or realized from a business or an adventure in the
nature of trade.
[30]
In 1338664 Ontario Limited v. The Queen,
2008 TCC 350, Justice Woods wrote:
5 In general terms,
the test for determining whether securities’ transactions constitute a business
is whether the taxpayer is engaged in a scheme for profit making or whether
there is merely an enhancement of value: Irrigation Industries Ltd. v.
M.N.R., 62 DTC 1131 (SCC); Hawa v. The Queen, 2006 TCC 612, 2007 DTC
28.
[31]
Similarly, in Hawa v. The Queen, 2006 TCC
612, former Chief Justice Bowman wrote:
13 Counsel
referred to a number of cases including Rajchgot et al. v. The Queen,
2004 DTC 3090 (TCC) aff’d, 2005 DTC 5607 (FCA); McGroarty v. The Queen,
94 DTC 6276 and Sandnes v. The Queen, 2004 DTC 2466. All of these cases
turn on their own facts and illustrate the importance of the factual
underpinning that supports a finding that a person has crossed the line from
investing to trading. Here the volume of trades, the rapidity of turnover and
the appellant’s own testimony that he was buying and selling shares to realize
a profit indicate that the concerted activity of the appellant was clearly the
carrying on of a business. It is worthwhile repeating what Lord Justice Clerk
said in the Court of Exchequer (Scotland) in Californian Copper Syndicate
(Limited and Reduced) v. Harris, (1904) 5 T.C. 159 at 165:
It is
quite a well settled principle in dealing with questions of assessment of
Income Tax, that where the owner of an ordinary investment chooses to realise
it, and obtains a greater price for it than he originally acquired it at, the
enhanced price is not profit in the sense of Schedule D of the Income Tax
Act of 1842 assessable to Income Tax. But, it is equally well established
that enhanced values obtained from realisation or conversion of securities may
be so assessable, where what is done is not merely a realisation or change of
investment, but an act done in what is truly the carrying on, or carrying out,
of a business. The simplest case is that of a person or association of persons
buying and selling lands or securities speculatively, in order to make gain,
dealing in such investments as a business, and thereby seeking to make profits.
There are many companies which in their very inception are formed for such a
purpose, and in these cases it is not doubtful that, where they make a gain by
a realisation, the gain they make is liable to be assessed for Income Tax.
What is
the line which separates the two classes of cases may be difficult to define,
and each case must be considered according to its facts; the question to be
determined being — Is the sum of gain that has been made a mere enhancement of
value by realising a security, or is it a gain made in an operation of business
in carrying out a scheme for profit‑making?
[32]
Counsel for the Appellant also put forward this
test as described by Professor Krishna in Fundamentals of Canadian Income
Tax, 2014, as: “Was the taxpayer intending to trade
(do business) or invest (hold property)?”
[33]
In Rajchgot, above, former Chief Justice
Rip continued:
16 The Federal
Court of Appeal in The Queen v. Vancouver Art Metal Works Limited, set
out helpful factors in determining whether a taxpayer has embarked upon a
trading or dealing business:
I have no doubt that a taxpayer who
makes it a profession or a business of buying and selling securities is a
trader or a dealer in securities within the meaning of paragraph 39(5)(a)
of the Act. As Cattanach, J. stated in Palmer v. R., [1973] C.T.C. 323, “it
is a badge of trade that a person who habitually does acts capable of producing
profits is engaged in a trade or business.” It is, however, a question of fact to
determine whether one’s activities amount to carrying on a trade or business.
Each case will stand on its own set of facts. Obviously, factors such as the
frequency of the transactions, the duration of the holdings (whether, for
instance, it is for a quick profit or a long term investment), the intention to
acquire for resale at a profit, the nature and quantity of the securities held
or made the subject matter of the transaction, the time spent on the activity,
are all relevant and helpful factors in determining whether one has embarked
upon a trading or dealing business.
17 The critical
factor in determining whether a taxpayer’s acquisition of a property is for the
purpose of investment or business is the intention of the taxpayer at the time
of the acquisition of the property. Intention is to be ascertained from the
appellant’s whole course of conduct.
18 To find that
Mr. Rajchgot (and his wife) were traders or the purchases and sales of the
shares were adventures in nature of trade I have to determine Mr. Rajchgot’s
intention when he acquired the shares in light of his conduct. The parties
agree that Ms. Lacey’s intention was that of her husband. In determining
Mr. Rajchgot’s intention, factors such as the frequency of the transactions,
the duration of the holdings (whether, for instance, it is for a quick profit
or a long term investment), the nature and quantity of the securities held or
made, the subject matter of the transaction, whether the securities are heavily
financed, the time spent on the activity, motive and the particular knowledge he
possessed all have to be taken into consideration. It is not the lack or
presence of one or more factors that will determine whether a transaction is on
capital or income account; it is the combined force of all of the factors that
is important There is no magic formula to determine which factors are more or
less important. Some factors complement each other. Each case is different. A
judge must balance all the factors. In the appeals at bar the following
factors, at least must be reviewed: . . .
He went on to consider the facts and analyze
the issue of intention under the following headings:
a) Frequency
of the Transactions
b) The
Duration of the Holdings
c) The
Nature and Quantity of the Securities Held
d) The
Time Spent on the Activity
e) Financing
f) Particular Knowledge He Possessed
[34]
Both parties’ submissions largely followed these
headings. The Appellant added a heading for “Consistent Reporting”, which has
been considered in other cases. The Respondent added the heading “Intention to
Acquire for Resale at a Profit (Motive)”, which is listed as a consideration in
Vancouver Art Metal Works, above, and is identified as critical in Rajchgot,
above, as well as by Krishna.
[35]
In support of the Respondent’s alternative
argument, that even if Mr. Foote intended to acquire any of the securities
as capital investments he also had a sufficient secondary intention to trade
them as part of an adventure in the nature of trade, reference is made to the
following passage from Justice Nadon in Canada Safeway Limited v. Canada,
2008 FCA 24:
61 A number of principles emerge from these
decisions which I believe can be summarized as follows. First, the boundary
between income and capital gains cannot easily be drawn and, as a consequence,
consideration of various factors, including the taxpayer’s intent at the time
of acquiring the property at issue, becomes necessary for a proper
determination. Second, for the transaction to constitute an adventure in the
nature of trade, the possibility of resale, as an operating motivation for the
purchase, must have been in the mind of the taxpayer. In order to make that
determination, inferences will have to be drawn from all of the circumstances.
In other words, the taxpayer’s whole course of conduct has to be assessed.
Third, with respect to “secondary intention”, it also must also have existed at
the time of acquisition of the property and it must have been an operating
motivation in the acquisition of the property. Fourth, the fact that the
taxpayer contemplated the possibility of resale of his or her property is not,
in itself, sufficient to conclude in the existence of an adventure in the
nature of trade. In Principles of Canadian Income Tax Law, supra,
the learned authors, in discussing the applicable test in relation to the
existence of a “secondary intention”, opine that “the secondary intention
doctrine will not be satisfied unless the prospect of resale at a profit was an
important consideration in the decision to acquire the property” (see page
337). I agree entirely with that proposition. Fifth, the viva voce
evidence of the taxpayer with respect to his or her intention is not conclusive
and has to be tested in the light of all the surrounding circumstances.
Credibility and Findings
[36]
A taxpayer’s intention is subjective and a
taxpayer’s testimony is, not surprisingly, largely if not completely self‑serving.
The extent to which a taxpayer is considered credible and the extent to which
their evidence is corroborated are very relevant considerations in
circumstances where the Court is required to determine the intention for a
taxpayer doing something.
[37]
I do not accept Mr. Foote’s rejection of
his personal investment experience, risk tolerance and strategies as recorded on
his RJL investment account agreements and statements. I accept instead
Mr. Stiff’s version of how those documents are generally completed and how
they would have been completed in Mr. Foote’s case. These client account
agreements and statements are the only evidence other than his own testimony
about his stock trading experience and objectives and he tried to brush them off
insouciantly. I was not shown account statements of any prior years. The
account agreements and statements provide relevant evidence on key questions to
be considered in this appeal. Mr. Foote would have the Court believe that
the new client agreements were always prepared in order to protect investment
managers and brokerage firms from their clients. He stated that in his case
these did not at all reflect his personal experience with investments, his investment
strategy or his risk tolerance. I am certain that his cringeworthy version
would significantly disappoint both RJL and the regulators. He also said he
would have signed the account agreements and forgotten them; this would be
inconsistent with them being renewed at least every two years and with the key
information being set out prominently on the face page of each month’s
statement for each account. I am not satisfied that these documents do not
generally describe Mr. Foote’s personal investment experience, risk
tolerance and strategies as well as can be done with assigning percentages to
words and phrases and creating pie charts, etc. I conclude that they do.
[38]
This has the further effect of harming the
credibility and weight to be given to his other evidence on key points that may
not be consistent or corroborated. This is in addition to my concerns about his
credibility when he proved very difficult and argumentative when asked to
confirm the data or the other evidence. For example, he declared some data as
absolutely false when his only concern was that he did not like what the data
was used to demonstrate in the table. He was very intentionally evasive and
difficult about clear statements in a letter from his accountant.
[39]
I am also not satisfied on a balance of
probabilities about his mortgage paydown plans for April 2009. Neither his then
wife nor anyone from RBC testified to corroborate this, nor were any RBC
documents showing when he committed to renew the mortgage put in evidence.
These could have been produced in support of this key aspect of his position at
the hearing and were not. Even Mr. Stiff, who would have seen significant
growth in Mr. Foote’s cash position in his RJL accounts in January and
February 2009, and who would have been receiving his sale orders without
corresponding purchase orders, and who said he would have been reviewing
Mr. Foote’s accounts’ positions in connection with each conversation with
Mr. Foote, was not told by Mr. Foote of his mortgage payoff plan
until after it was no longer his plan. That is very odd. Further, I note
Mr. Foote’s employment income had dropped by more than 50% in 2008 and was
dropping another 25% through 2009. Finally, I remain troubled by him selling
off as part of a liquidation right up to Friday, February 27, 2009 and
beginning his new reinvestment program on Monday, March 2, 2009; that
would have been a memorable weekend, but it was not described.
[40]
I am also unable to conclude on a balance of
probabilities that Mr. Foote’s 2009 investment strategy was unchanged from
prior years because I was given very limited evidence from other years from
which this could be expected to be readily corroborated. At the very least, by
some point well before the closing months of 2009, I conclude that the time
horizon for his 30% overall target return was considerably shorter than say the
2.5‑year example of his expected comparable horizon before 2009. He
continued buying right through December 2009, long after he sold multiple
positions after very short holds. Surely by some point in the first part of his
2009 reinvestment activities, he realized that he was picking securities for
the quickest target cumulative return. He also would have realized that
distributions were no longer going to contribute to his 30% target return. His
2009 transactions tripled relative to prior years. His 2010 transactions
remained at about the same level even though 2009’s historic returns were no longer
the markets’ performance.
[41]
There was no explanation as to why
Mr. Foote should be selling his Open Text stock before he finished buying
more given his stated investment strategy. These were not short sales. He
bought, then sold some the following month, then bought some more the following
week, then sold them all three days later. He said in examination‑in‑chief
that when he bought Open Text he believed that long term he could achieve his
desired 30% return.
[42]
I conclude from all of the evidence that, at the
time of his 2009 securities purchases, Mr. Foote intended to sell them as
soon as he could realize a reasonable gain in prevailing markets, and that he
expected that to be a very short time frame in the circumstances.
[43]
The combined result of not being able to conclude
(i) that his investment strategy was unchanged in 2009 or (ii) that he liquidated
in early 2009 in order to pay off his mortgage, and not having been given
detailed evidence regarding prior years, is that I am left largely considering
only the actual activity in his accounts in 2009.
[44]
I also do not accept that Mr. Foote’s
expertise and experience did not extend to what he regarded as actual trading activities,
as compared with his facilitator/matchmaker/pairing role as Co‑Head of
Institutional Trading, since he spent 15 years at RBC Dominion Securities
and I was not told anything at all about what he did there. One can guess he
might well have risen very nicely through the ranks at RBC Dominion Securities
since he became Head of Institutional Trading at CIBC World Markets when he
left. One might reasonably infer he had some considerable and successful
trading experience by the end of his 15 years there.
[45]
Even his underlying explanation that, as Co‑Head
of Institutional Trading, he was not really trading is overly facile. He
explained that he was a facilitator of trades and he does not manage money. He
explained that he is only actually trading on a day‑to‑day basis as
a head of Institutional Trading because he presses the cross button. That is
like saying the real estate broker is different from the real estate agent who
is different from the mortgage broker or the law clerk at the registry office
or logged on to the registry website. The fact is he earned his living all
through his professional career at firms who earned much of their income from trading
in securities for their clients’ account and for their own account. He was a
key officer in an integral department in those businesses. He was not their
vice‑president of human resources or information technology. He was head
of Institutional Trading. All of the traders in Institutional Trading were
supervised by him. All of this makes Mr. Foote, in common parlance and as
generally described in the markets in which he works as described by both Mr. Stiff
and himself, a trader.
[46]
While Mr. Foote’s securities trading
activities in 2009 may arguably not have risen to the level of him carrying on
a business of trading securities, they appear to handily meet all of the
requirements to have been considered an adventure or concern in the nature of
trade which, under the definition of “business” in section 248 of the Income
Tax Act, makes the gains income gains.
[47]
I find that throughout the last 10 months
of 2009, actively trading securities profitably for gain was Mr. Foote’s primary
intention with respect to all of the purchases in his investment accounts
(other than those to close out his short sales). If I am wrong in this regard,
it was at least a secondary intention of his that significantly motivated his
purchases.
[48]
Mr. Foote’s lengthy, significant and
successful professional career in prominent brokerage firms is a relevant
consideration in this case. I wholly accept that it must be reasonably possible
for a securities trader or for a senior officer of a brokerage firm to realize
gains generated by buying and selling securities on capital not income account.
However, Mr. Foote has been unable to satisfy me that, on the facts in
evidence, his is such a case. He is not being treated differently or singled
out because his investments were in securities. An antique dealer, or a senior
management employee of one, or of a numismatic or philatelic dealer, a vintage
car collector, a real estate broker, or an auctioneer in comparable
circumstances could reasonably expect a similar result.
[49]
It is not a full answer that he was not trading
on specific insider‑type information and that his buying and selling
decisions were based on information that any member of the public with enough
time, diligence, access, resources and effort might also have been able to
compile.
Conclusion
[50]
Having regard to the evidence relating to all of
these considerations and my findings above, I conclude that Mr. Foote was
trading in the securities as a business activity, or at least was buying and
selling the securities as part of an adventure in the nature of trade. The key
considerations in this case in arriving at that decision are:
1. I
have already found his primary intention when purchasing the securities to be
to sell them at a profit as soon as a reasonable return in the then market
circumstances could be realized. In so doing, I expressly did not accept his
testimony about his intention.
2. Mr. Foote
spent considerable time each day monitoring markets beyond what he said was
required for his employment. In addition, he gleaned relevant market
information as part of his daily job as Head of Institutional Trading at a
major investment dealer. This also gave him well beyond average access to
market information that is public, and he availed himself of that access and
information.
3. The
nature of the gains realized by Mr. Foote buying and selling securities in
his investment accounts bears a close similarity to what he has been doing in
his investment dealer positions for decades. He has developed considerable
expertise and accumulated considerable knowledge at this.
4. Mr. Foote
was buying and selling regularly throughout the year.
5. Mr. Foote’s
holding periods were clearly short and often very, very short.
[51]
The appeal is dismissed, with costs.
Signed at Ottawa, Canada, this 21st day of April 2017.
“Patrick Boyle”
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